Subscription-based startups and pitfalls to avoid

It’s no secret that the world of e-commerce is changing with basically every passing day. Just like in the fashion business, new trends come and go, shaping the entire market with the slightest ripple of wind. One of such trends is the e-commerce companies’ preference toward the subscription-based business model.

Why is the subscription-based business model popular?

With the rise of start-ups like Birchbox and Dollar Shave Club, and already established, widely-known services like YouTube Premium and Spotify, many people are now finding that by getting a subscription they can experience a product without having to buy it at a hefty price upfront. The increased popularity of such a business model has sparked an interest in many entrepreneurs, thus spawning more and more subscription-based start-ups. However, even though this e-commerce practice might seem attractive to any starting entrepreneur, there are certain pitfalls you should avoid making so your start-up can flourish from the beginning.

Pitfalls to avoid before making your subscription-based start-up

1) Not doing your research and not willing to put your time into learning

Many people say that having a unique idea is the most important thing before building your start-up from the ground. While it’s true to some extent, an idea is nothing without proper execution. That’s where the learning process comes into play. Diving fearlessly straight into the deeps of the e-commerce ocean fueled solely by pure enthusiasm might feel like a great thing to do, but you should remember that building your start-up is a process. A unique idea and enthusiasm are also crucial, but without proper preparation, things might get out of hand quickly, and you could find yourself in a position where your beloved start-up is slowly drowning. Speaking of making your own subscription-based business, you have to do your research:

• Start with getting to know what your target audience is. What problem do they want to solve? What are the main advantages for them to use your service? How much are they willing to pay for it?
• Proceed with getting to know your competition. It’s the fundamental principle of any business in any niche. Do your homework!
• Define what the main trends are in the market where you’re going to develop your business.
• What to do in the case of failed payments?
• How to properly set up the return logistics?

Simple as that, and those are just a couple of many ways to do proper preparation before taking a leap into the e-commerce wormhole. The main thing is, don’t be afraid to put some of your time into learning!

2) Various mistakes with the pricing

This one deserves its own list, so let’s break down the most impactful mistakes to avoid:

Setting a low price for your service

Usually, when we are speaking about a traditional business, there is clear pricing for the product or service offered by the company, and if you set the price too low, you always have a chance to pump it up. However, it’s not the case with the subscription-based type of business as the cost in the initial agreement between the company and the consumer will be valid until the end date of the agreement itself. Simply speaking, if the customer gets a one-year subscription for $10 per month, and then you decide to increase the service’s cost up to $15 a month midway through the year, your client will still be paying $10 until one year passes. It means if you set the price too low, you’ll lose far more in the bigger picture.

Not giving your customers different pricing options

Customers like to have a choice, even if it might not seem like a profitable thing for the entrepreneur. More pricing options or service packages mean that more people would be able to choose what exactly they’d like to get. Also, having multiple offers means that your customers will have a chance to test drive your service and decide whether they’d like to move up to another offer for a higher price. Usually, subscription-based services provide their clients with 3 to 4 different packages with different pricing, and it really works wonders in terms of client conversion.

Using the freemium model without a clear way to make your free customers paid users

The freemium business model is great, don’t get me wrong, but it might turn out to be your biggest foe in the long run. How? Think of a worldwide-famous service like WinRAR and answer this simple question: Do you have a full version of this super-useful utility, or maybe you know someone who does? Honestly, I don’t, and that’s the perfect example of a service that runs a freemium model, although the capabilities of a free version of the utility are good enough for the majority of users, so most people just keep on using it without willing to pay for the full version. Once again, freemium might be a useful marketing tool, however, you should always have a plan for how to convert your free customers into paid users. Also, don’t overcomplicate your start-up with needlessly annoying paywalls. Keep it simple and fair for the customer and yourself!

3) Underestimating the importance of choosing the best platform for your start-up

As you already know, there are three main platforms for your future subscription-based start-up: Web, IOS, and Android. Today, we won’t dig into the pros and cons of each of those three, but we’ll have to mention one of those behemoths as an example of why your choice is so important for the future of your start-up. Among those three, Apple’s platform has been on everybody’s lips since the beginning of the year. All thanks to their litigation with Epic Games over the latter’s famous creation titled Fortnite.

The bone of contention in this whole conflict was the fact that Apple takes a fee (which goes up to 30%) from every transaction made on their platform, thus significantly slowing the progress of many young start-ups and even already established companies like Epic Games. In August 2020, Epic Games released an update for Fortnite where they added a new paying option to their in-game store. This option gave the players the ability to make purchases directly from Epic Games, thus avoiding the platform-set fee. Of course, by doing so, Epic Games violated numerous rules of the Apple Store, which led to the removal of Fortnite from the platform.

Epic Games answered with a lawsuit against Apple that turned into a fully-blown courtside war which seems to be ended with the jury’s verdict on September 10, 2021. The decision is often labeled as “not a win for consumers or for developers”, however, it did bring some advantages for the latter. The jury ruled that Apple should not restrict application makers from implementing links to their external websites for payments, which is a big win for the developers who work with the Apple Store!

Long story short, be mindful about what platform you select as it might turn out to be the crucial thing that stunts your start-up’s growth.

4) Not providing top-notch service for your customers

That’s the part where a lot of start-ups mess up, even though it’s the fundamental principle of ANY business type, especially in the Internet era where the client’s feedback is worth as much as the currency itself. Once again, keep it fair with your clients and don’t try to fool them. The most successful start-ups are the ones that are the most useful to the customers!

Conclusion

Launching a start-up is not a piece of cake, for sure, however, it’s still absolutely possible to build a successful company using a subscription-based approach in 2021. All you have to do is have the right mindset, the will to create something useful for the customer, not just a money-making machine, and some time to spend on learning, just like you did today with this short article!